In the philosophy of dreaming, it is common to assume that dreams fall into one of two categories, which are thought to be mutually exclusive: Either they are quasi-perceptual phenomena, which is typically taken to imply they are hallucinations, or they are imaginative experiences. In this chapter, I propose that describing dreams as immersive mental simulations can help overcome this dichotomy, illuminating how dreams are both perception-like and deeply imaginative. Like standard waking experiences, dreams are here-and-now experiences of a virtual world centered on a virtual self. Like imagination, they are driven by spontaneous processes, marking a deep commonality with mental simulation in wakefulness, including mind-wandering and daydreaming. The sources of dreaming are similarly broad, spanning short- and long-term memories, ongoing concerns, and emotions, as well as illusory own-body perception during sleep. Understanding the commonalities between dreaming, perceiving and imagining without collapsing dreams into either category can enrich our understanding of our mental lives and forge new connections between philosophy and contemporary research on sleeping, dreaming, and mind-wandering.